End Of World Capitalism?

[Felix]

I live in Germany and right now I fear a new breakout of facism here.

We have a socialist party here which reaches 12% by now. It will reach majority next time. I live in a country which is overloaded with debt. Therefore we have a high unemployment rate. And it's rising. The state can no longer finance the 'social system' it has established. The problem, as it is said in the media is, of course capitalist pigs and their greed, closing down German factories to build ones in other states. No one understands that this is utter nonsense down here.

I fear an outbreak in the next 10 years from now.

This is - by the way - how Hitler attained power. The state goes bankrupt, because it has too much debt and the people vote anticapitalist extremists whose theories cannot stand thirty seconds of rational analysis. History repeats itself if we don't learn our lessons. I wonder where I should move once I have my engineering degree.

I don't just fear this development for Germany only, but for world capitalism.

I wonder what your opinion is on that.

Edited August 16, 2005 by Felix

[Dufresne]

I live in Germany and right now I fear a new breakout of facism here.

We have a socialist party here which reaches 12% by now. It will reach majority next time.

I assume the socialist party you are referring to is the recently formed party "Die Linke.PDS". By "next time" do you mean the nation-wide elections in around four years? What makes you think they will have a majority next time?

[Felix]

I assume the socialist party you are referring to is the recently formed party "Die Linke.PDS". By "next time" do you mean the nation-wide elections in around four years? What makes you think they will have a majority next time?

That's what I meant. I believe they will have a majority next time for the following reasons:

1. During the current elections a party will very likely be elected which is trying to cut off government spending(CDU). Being a good thing in principle this will surely cause - or to put it better: severe the current deflationary trend.

2. This will lead to many companies closing and thus to an increase in unemployment

3.Unemployed people tend to vote for socialist parties

To explain point 1:

It is widely believed that all the government has to do is to stop interference with the market and everything will turn out fine. This is true. Unfortunately this is not what the state does. It has a debt that cannot be paid off with the current Gross national product (and it rises faster!). Therefore the state is practically bankrupt.

But since no one can believe that the big automobile manufacturing country Germany can be bankrupt this will keep for a while.

This debt is the cause of the current unemployment rate. Usually when you invest money someone takes it on as a debt and creates jobs to handle the workload to pay the debt off. This person is the entrepreneur.

The state does this too, but it does't create jobs with the money. It spends it on crap or gives it to people who then spend it on crap.

The result is: no jobs.

The state doesn't pay the money back by raising taxes or something. This happened for about fifty years - since the beginning of western Germany.

Therefore nobody's working to pay off the debt.

That's unemployment.

If the state now tries to save money, it will -being the only one pumping money into the market- cause a lack of demand. Therefore many companies will go down.

This causes a decrease in the amount of money circulating (That's deflation)

Nobody is stupid enough to start a new company during a deflation.

So - in the end we're stuck.

Unemployment rising. Desparation rising. And idiots voting the left parties.

I have fear of Lafontaine especially. He could be our next Hitler.

[Dufresne]

It is widely believed that all the government has to do is to stop interference with the market and everything will turn out fine.

What evidence do you have for the claim that there is a wide belief in a separation between state and economy? Personally, the people in my immediate environment (I also live in Germany, btw.) advocate a mixture of socialism and capitalism. I don't know anyone personally, for example, who would be willing to privatize education or health care. On the other hand some privatizations are seen favorably (e.g. telecommunications). Don't you think that coal subsidies would have been stopped (after how much time? decades now?) if there was such a wide belief in capitalism?

If the state now tries to save money, it will -being the only one pumping money into the market- cause a lack of demand. Therefore many companies will go down.

What do you mean by the state saving money? Less spending? What happens with the money that was saved? Are taxes lowered? Is debt being paid? If taxes are lowered then more wealth can be used to create jobs.

[jimdevine]

I understand the German economy has been stagnant of late, but I have seen nothing to indicate it will fail.

The ongoing failure of socialism is to be expected with all the associated pain it will cause.

My question would be: Are the common misconceptions, ignorance and perceptions that allowed the introduction of the Nazi party the exception or the rule in modern Germany? Would the outcry for intensified socialism lead to a hardline government which would return to an East German style rule? Or would the overgrowth of socialism simply lead to a breakdown and failure of the goverment and economy needing a bailout from the EU and America?

If it happens soon Lee Iococa might be able to be the spokesman for the bailout! He has become very active with Chrystler again...

Sorry couldn't resist.

[The Wrath]

Every time I get gloomy about the current state of the world, I remind myself of this quote from Anthem:

“Through all the darkness, through all the shame of which men are capable, the spirit of man will remain alive on this earth. It may sleep, but it will awaken. It may wear chains, but it will break through. And man will go on. Man, not men.”

It fills me with the hope that, although it may not happen in my lifetime, the fire in man's soul will flare up again at some point in the future. If it is to happen in my lifetime, I think something cataclysmic, on the order of a nuclear explosion, will have to occur.

For instance, I honestly believe that if terrorists detonated a nuclear bomb in this country, we would quickly re-adopt our policy of unconditional surrender that was so instrumental in depriving us of the company of Hitler, Mussolini, and Hirohito.

[gags]

I'm sorry to hear that things in Germany have deteriorated to such an extent. This sort of thing gets little or no media coverage here. In fact, the left in America hold up the socalist economies of Europe as some sort of model which we should be trying to emulate.

[Inspector]

Everyone interested in knowing what caused Nazism and how to avoid it happening again should read The Ominous Parallels by Leonard Peikoff.

As a side note, I take issue with the title of this thread: It is the socialist system, not capitalism, which will collapse under the weight of debt. Socialism is the cause of the debt and the collapse, and is the best name for the system which will collapse.

[Felix]

Personally, the people in my immediate environment (I also live in Germany, btw.) advocate a mixture of socialism and capitalism.

You are right, of course. In Germany nobody believes in capitalism and those who do are looked at as freaks. I tend to maintain discussions with other people on these issues and the best I get is: This is good in theory but it won't work in practice. Which is stupid too, but this is as good as it gets.

There is currently no chance for free capitalism in Germany. Altruism has a firm grip on this country.

When I said widely believed, I meant widely believed in this forum.

What do you mean by the state saving money? Less spending? What happens with the money that was saved? Are taxes lowered? Is debt being paid? If taxes are lowered then more wealth can be used to create jobs.

I mean that they will try to cut spending and raise taxes to pay off the debt. This is good in principle, but they won't reach their goal.

If the state maintains a balanced budget, your statement is true. Lowering taxes increases freedom and therefore increases wealth and jobs. This is not the case if there is high state deficit. Here the job of the state would be to raise taxes to pay off the debt (and get out of the entrepreneur's way again). It would have to pay the debt plus interest. If it didn't, the debt would rise and since capital is bound in this useless debt, it is not used to create jobs.

Capitalism, to survive, needs to grow. That means that the amount of money available needs to grow. Since the law of double bookkeeping states that for every asset there is an equal debt, it means that what capitalism needs to persist is a rise in debt. This is why deficit financing works in the short range.

Capitalism is not about exchanging goods, but about making contracts of debt.

Since you live in Germany, I recommend reading Paul C. Martin's book:

Kapitalismus, ein System, das funktioniert (It's available on ebay for 1 Euro or 2)

It is the best theory of capitalism I have found up to date. In there, everything is explained in detail.

But to make my point and explain my theory:

Capitalism is based on property rights. Property can be used as a collateral for debt. That is its function in capitalism. In countries, where this is not the case, capitalism is not possible. Here I must refer to Hernando de Soto's brilliant book:

The mystery of capital.

A simple example:

Most small companies are started by the money you get for a mortgage on your house.

If this is not possible, you're stuck. Especially if it is not sure if that house is legally yours. This is one of the two main reasons most poor countries are poor. The second being, of course, lack of entrepreneurial freedom.

Once these two conditions are met, capitalism can flourish.

The entrepreneur is drowning in debt and time works against him. Once he has accepted his debt, he has to pay off interest. And he has to pay off more the longer he waits. This fact is nonexistent in common economical theory.

The problem is this:

Companies put a certain amount of money into the market.

Then they all try to get more money out of the market(otherwise they are bankrupt). This is only possible if some companies lose out or if the amount of money available in the market rises. No matter how productive they are.

This amount of money can only be raised if new entrepreneurs appear and make more debt, take the money and give it to their employees who then can buy the other companies' products so they can pay off their debt. But now these new entrepreneurs are loaded with debt that can't be paid off with the amount of money currently available in the market. It is interest that drives capitalism. There is never enough money in the market to pay off all the debt, because time has passed and due to interest the amount of debt rises over the amount of money.

This is the problem. Capitalism isn't about exchange of goods. Money is not a means of making exchange easier. In fact, in the beginning of capitalism, all the different currencies actually made the exchange more difficult.

Money is debt.

And all production is done to pay off debt. This is what entrepreneurs do:

They take debt and use it to make others take on more debt, so he can pay off his debt plus interest and even make a decent profit.

Up until now in Germany this next debtor was the state. It made new debt all the years making life easier for entrepreneurs in the short range, but leading to the destruction of production and total bankruptcy in the long range.

Siemens now holds a big bunch of german bonds instead of investing the money.

It's easier and they don't see how they can make that much profit elseway, they say.

I know that this is a new theory and that it contradicts the supply-side idea that every supply creates its demand. The reason for this is that this idea is false.

[gags]

Felix: this is a pretty good thread on money. http://forum.ObjectivismOnline.com/index.php?showtopic=3811

You might find it informative.

[Felix]

Felix:  this is a pretty good thread on money. http://forum.ObjectivismOnline.com/index.php?showtopic=3811

You might find it informative.

Thanks, I already added a post.

[erik]

I was under the impression that a big part of the unemployment problem in Germany is the wacky labor laws. You basically can't fire people for any reason without having to pay them anyway so to avoid firing people they just don't hire people. Here in the USA you can fire/hire much more easily unless you are union but union membership is very, very low.

Just a thought.

[Felix]

You basically can't fire people for any reason without having to pay them anyway so to avoid firing people they just don't hire people.

True, but if the economy is going down the tubes all the freedom in the world won't make you start a company and hire people.

Edited August 17, 2005 by Felix

[gags]

True, but if the economy is going down the tubes all the freedom in the world won't make you start a company and hire people.

True, however when labor costs cannot be reduced in response to a lack of demand, massive unemployment results, further worsening the overall economic situation.

Also, Inspector is right. You should change the title of this thread.

[daniel]

The Economist argues that Germany has a bright future. Unemployment is falling, companies have cut their cost bases, unions have accepted wage cuts, decentralised pay bargaining and longer hours. Germany has regained its position as the world's largest exporter, unit labour costs have fallen and recent surveys of business confidence are encouraging.

[Felix]

The Economist argues that Germany has a bright future. 

Let them argue. I believe that they're wrong. And I told the reasons. Please attack them. I can't.

[daniel]

Let them argue. I believe that they're wrong. And I told the reasons. Please attack them. I can't.

I have, for example unemployment is not rising (unemployment has fallen for 4 months in a row and there are 50% more job vacancies than there were a year ago). Also:

Firms are now allowed to sell their cross-shareholdings without paying CGT.

According to Morgan Stanley 30% of Germany's workforce is in part time or temporary jobs thus firms are able to deploy their labour more flexibily than in the past.

Two thirds of Germany's top 30 listed companies produced improved results for the second quarter of the year.

All major banks have their costs and balance sheets under control.

The country is the world's leading exporter, selling goods worth 733bn euro ($920bn, £500m) a year and growing.

Profits at Germany's large companies are soaring.

Business confidence is also improving - several respected surveys suggest company bosses are getting bullish about the future.

Of course there are problems (after all the socialists have been in power for along time and you have the Euro) but to say things are getting worse and there is a serious possibilty of fascism returning is just wrong. Not only is the economic situation improving as the above stats show (as well as those I provided in my past post which have not been countered) but having PR and a min threshold reduces the risk of an extreme party gaining power. Most likely the CDU will win, hopefully with the Free Democrats playing a big role. Thus left to itself the economy will improve - the risk is politicians but as socilaists look likely to be defeated the right will be able to put in place its much more sensible econmic policies. The CDU, despite a history of welfare support, is shown good signs for example appointing Kirchhof, as shadow finance minister, who supports a flat tax.

Hitler came to power when things were VERY bad with hyperinflation. This is not the case and as i have said things are getting better and look set to continue if the German people vote for a right wing party.

The main problem is domestic demand: people arn't spending. But imports have begun to rise again, which is an indicator of increased domestic demand. Also as the BBC notes 'foreign investors, especially hedge funds, are already busy snapping up Germany's undervalued companies and assets, hoping to capitalise on the country's potential for growth'. These capitalists have faith and so do I.

[Felix]

Of course there are problems (after all the socialists have been in power for along time and you have the Euro) but to say things are getting worse and there is a serious possibilty of fascism returning is just wrong. Not only is the economic situation improving as the above stats show (as well as those I provided in my past post which have not been countered) but having PR and a min threshold reduces the risk of an extreme party gaining power. Most likely the CDU will win, hopefully with the Free Democrats playing a big role. Thus left to itself the economy will improve 

Yup, the CDU will win and the FDP will have their part in it, too. And they will start a campaign based on supply-side economics.

According to that theory things will happen as you say.

I just say that they won't, because the theory is wrong.

I want to start an extra thread on this in the economics part of this forum.

The main problem is domestic demand: people arn't spending.  But imports have begun to rise again, which is an indicator of increased domestic demand.  Also as the BBC notes 'foreign investors, especially hedge funds, are already busy snapping up Germany's undervalued companies and assets, hoping to capitalise on the country's potential for growth'. These capitalists have faith and so do I.

The rise in foreign investor interest is due to the belief in supply-side economics.

I believe that this sort of political activity (i.e. less political activity) is good in general and if it weren't for the state deficit I would agree completely.

But the deficit is there and I see no way it can be reduced.

Therefore I don't share the optimism.

Reality will decide at last.

[daniel]

Yup, the CDU will win and the FDP will have their part in it, too. And they will start a campaign based on supply-side economics.

According to that theory things will happen as you say.

I just say that they won't, because the theory is wrong.

I want to start an extra thread on this in the economics part of this forum.

The rise in foreign investor interest is due to the belief in supply-side economics.

I believe that this sort of political activity (i.e. less political activity) is good in general and if it weren't for the state deficit I would agree completely.

But the deficit is there and I see no way it can be reduced.

Therefore I don't share the optimism.

Reality will decide at last.

Could you elaborate on your reasoning? I'm a student of political science not economics. Also if there is more money coming into the economy from abroad, people are beginning to buy more things, businesses expect to expand, goverment is looking to cut spending etc won't this mean there will be more revenue coming into the government to pay off debt? A Laffer Curve type episode - rising investment = rising revenue which means the government can pay off debts?

[Felix]

Could you elaborate on your reasoning? I'm a student of political science not economics. Also if there is more money coming into the economy from abroad, people are beginning to buy more things, businesses expect to expand, goverment is looking to cut spending etc won't this mean there will be more revenue coming into the government to pay off debt? A Laffer Curve type episode - rising investment = rising revenue which means the government can pay off debts?

My reasoning is that there is -always- a lack of money in capitalism, because the money that already exist is also the debt of some guy having to pay it off. That's where money takes its value from. This debt he has is rising. The money he has spent is not. The only way out is other people taking on new debt and taking over the problem. This is economic growth.

Money coming in from abroad will indeed help Germany to survive and it could be the fuel for the economic motor to start again. That means that entrepreneurs believe they can actually sell what they produce and take on the debt to produce it, which then leads to an upward spiral. If the incoming money takes over the part of public debt in terms of pushing money into the market we may actually be saved. But to do that, private investors must put more money into the market than the state takes out so that the amount of money still rises.

Let's hope it works.

It will only worsen the economies of their home countries.

In the end we will have to eliminate public debt on earth. This is what I'm trying to say. Everything else is just postponing the problem and making it worse in the end.

Edited September 5, 2005 by Felix

[daniel]

My reasoning is that there is -always- a lack of money in capitalism, because the money that already exist is also the debt of some guy having to pay it off. That's where money takes its value from. This debt he has is rising. The money he has spent is not. The only way out is other people taking on new debt and taking over the problem. This is economic growth.

Money coming in from abroad will indeed help Germany to survive and it could be the fuel for the economic motor to start again. That means that entrepreneurs believe they can actually sell what they produce and take on the debt to produce it, which then leads to an upward spiral. If the incoming money takes over the part of public debt in terms of pushing money into the market we may actually be saved. But to do that, private investors must put more money into the market than the state takes out so that the amount of money still rises.

Let's hope it works.

It will only worsen the economies of their home countries.

In the end we will have to eliminate public debt on earth. This is what I'm trying to say. Everything else is just postponing the problem and making it worse in the end.

Yes and I think things are looking optimistic when it comes to investors putting more into the economy for the reasons I mentioned above. That coupled with a government which wants to cut spending makes things look good and that's why I don't think Germany will turn fascist as a CDU -FDU coalition looks likely. If only Germany has a first past the post system and the FDU was the major party of the right!

PS do you live in the East and who will you vote for?

Edited September 5, 2005 by daniel

[Felix]

PS do you live in the East and who will you vote for?

What is that supposed to mean? I don't. And I will vote CDU-FDU, because of moral issues. I still believe that the state deficit can't be reduced and that this will show most clearly if it is really tried. I'd wish that a turnaround works, but it won't.

And I believe it will show during the next 10 years which will then result in the rise of the new left party. That's what happened 70 years ago.

State bankrupt, economy down, left party voted.

The problem is everyone believes that Hitler was 'right' (politically, not epistemologically) and what we should learn from history is to like foreigners in general and jews in particular. That the jews were 'the rich' and that this was why they were killed has not entered public opinion and it won't.

If you don't learn your history lesson, you have to repeat it.

[daniel]

What is that supposed to mean? I don't. And I will vote CDU-FDU, because of moral issues. I still believe that the state deficit can't be reduced and that this will show most clearly if it is really tried. I'd wish that a turnaround works, but it won't.

And I believe it will show during the next 10 years which will then result in the rise of the new left party. That's what happened 70 years ago.

State bankrupt, economy down, left party voted.

The problem is everyone believes that Hitler was 'right' (politically, not epistemologically) and what we should learn from history is to like foreigners in general and jews in particular. That the jews were 'the rich' and that this was why they were killed has not entered public opinion and it won't.

If you don't learn your history lesson, you have to repeat it.

It's supposed to mean what it says. My curiosity was aroused because I understand pessimism is much stronger in the East and was wondering if this was true in your case, in order to know I had to ask.

Is it insulting to ask someone if they are from the East?

I'm confident that Germany will get better for the reasons i have given. Also Hitler came to power for a range of reasons from his charisma to the Nazi's tapping into German nationalism. At the time so many Germans were nationalist (bitter at defeat etc), today this is not the case with many in favour of a federal Europe and sacrificing their soverignity for it. It wasn't just economic reasons.

Either way poverty doesn't mean turning to the left. Look at 1970s UK, after strikes, massive debt (forced to beg the IMF), shortages, 3 day weeks etc the British people voted for Thatcher (in the UK we are comparing your Merkel to our Thatcher), the most right wing prime minister of the 20th century. Also if poverty did mean turning to the left so many of those (poorer)southern states in the US would be democrat and many of the northern states would be Republican, this of course is not the case.

Also won't your electoral system prevent such heavy concetrations of power and thus prevent an extreme party coming to power. Though Weimer Germany also had PR this was more fragile than the present electral system i.e mixed system.

After a history of going to extremes - fascism and communism and seeing the disastrous results surely Germans would realise their errors. Perhaps I'm too optimistic of humans?

Edited September 5, 2005 by daniel

[Felix]

Is it insulting to ask someone if they are from the East?

Yes. Germany is still split. The East still receives lots of subsidies from the west.

And most people in the East are unemployed. Reuniting Germany would have been wonderful if we only didn't integrate them into our social system.

There could have been a new drive to Germany's economy instead of a constant burden.

Yes, Thatcher was voted when Britain was down. And they managed to get their crisis in order. I still need to read something about that. I'm not very history-savvy except for parts. Looks like we do that here, too. Vote an ugly woman to take the lead on supply-side economics.

But I don't believe we achieve the turnaround.

Thanks, your suggestions gave me some relief.

Anyway, I still hope and do my best. What else am I gonna do? I want to live.

[Capitalism Forever]

At the time so many Germans were nationalist (bitter at defeat etc), today this is not the case with many in favour of a federal Europe and sacrificing their soverignity for it.

Wherever there are people willing to sacrifice something, there is an opportunity for a tyrant.